Should we view the corn market with a bullish or bearish lens?
Exports fell last week, causing a surplus. Numbers were below expectations- is it just a blip or something more? Corn growers would like to see strong demand for corn to stick around awhile, and signals might be pointing in that direction. Read on to find out why.
Is a Bullish Corn Market Ahead?
We started last week with a slight decrease in ethanol production and a build of surplus. By the end of the week, the weakest weekly export data of the new marketing year emerged. Numbers were significantly below market expectations.
There was also a large cancellation from an “unknown” destination. Small quantity buyers included Columbia, Egypt, Japan, Mexico and South Korea.
The bulls believe it’s only temporary. Their justification? A river barge of freight to the Gulf was delayed by rains. Pair that with competition from corn from Argentina and Ukraine- which is 50% harvested. And the past couple weeks have brought 30 cent rallies off of the lows.
Rainy, wet weather slowed the corn harvest, and bullish chart patterns attracted fund traders. However, they never quite turned, and selling picked up again. The CFTC collected data through October 16 for the Commitment of Traders.
In corn, bigger speculators cut 52,149 contracts off their net short position, down to 28,531 lots. The hedge funds were selling strongly again though, before the end of the data collection.
Will Corn be Bearish Long-Term?
The USDA’s cattle on feed report could be bearish over the long-term. Placements have been below what many analysts were expecting. We’ll find out soon, as the USDA supply, demand and production numbers are released November 8th.
Ethanol futures were weak to mixed. According to the Buenos Aires Exchange, 33% of the corn crop there had been planted, and conditions appear to be good.
Down and Up Again
Al Kluis of Successful Farming predicts that corn and soybean prices will move up after the 2018 harvest. Corn prices will hit a major low, and are ready for a turnaround. Global inventory is high, at over 8.2 billion bushels.
When you look at the Stocks-to-Use ratio (SUR), which shows how much you have left over compared to how much you’re using, the smaller the ratio, the more positive the price. Too much inventory shows a larger ratio and lower price.
In 2015 and 2016, SUR was 26% for corn. The most recent USDA report shows a SUR for corn at 14%. That’s the smallest it’s been in the last ten years. And that’s good for prices.
Kluis predicts that it will be easy to be bullish on corn. And any added growing challenges could drive prices even higher.
The Kluis Plan
Kluis has 40% of his corn and soybeans sold ahead with hedges. He has 20-40% of the crop protected with puts. He’s going to store the rest until next spring.
His target price for July 2019 corn is $4.40. He’s optimistic over the long term, but that’s not stopping him from having a price plan with targets.
There are mixed signals in the corn market these days. Having a risk adjusted marketing plan and executing it will help smooth out the bumps along the way.